MASILAMANI NANDAGOPAL,CHENNAI vs. ACIT, CC-3(1),, CHENNAI

आदेश / O R D E R PER ABY T. VARKEY, JM: These are appeals preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), (hereinafter referred to as ‘Ld.CIT(A)‘), Chennai-20, all dated 29.06.2024 for the Assessment Years (hereinafter referred to as ‘AY‘) 2014-15 to 2018-19. As the issues involved across all these appeals were common, they were heard together. Both the parties also argued them together raising identical to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal

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Group to develop a certain parcel of land at Cook Road, Chennai for which it had received security deposit of Rs.250 crores, which was also recorded in their regular books of accounts. Later on in the post search enquiries, it was gathered that, out of the sums which were received through banking channel, M/s Binny Limited had inter alia advanced sums to the extent of Rs.212.56 crores to seven (7) concerns, which the Investigating authorities were unable to trace at their given addresses upon spot verification. Subsequently, the assessee’s son, who is the Managing Director of M/s Binny Limited, was summoned u/s 131 of the Act and was asked to explain the nature of advances given by M/s Binny Ltd. to these seven (7) concerns, to which he inter alia stated that, the company, M/s Binny Limited was required to incur cash expenses for development of the land parcels, and therefore the company had made these bogus advances to generate unaccounted cash, which was received by the company and utilized to meet their expenses. It was further gathered by the Investigating Officer that similar modus operandi was also undertaken by M/s Binny Limited through another group company, M/s Mohan Breweries & Distilleries Limited (in short ‘MBDL’) wherein also the monies received from M/s Binny Limited was allegedly advanced to bogus entities to receive back cash. The assessee’s son is noted to have similarly averred in his statement u/s 131 of the Act that the cash so generated was to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal

:: 4 :: utilized to meet the incidental expenses of MBDL. On the same date when the assessee’s son was summoned i.e. 07.03.2018, the Investigating Officer also recorded the statement of Shri Bhawarlal Jain, who had purportedly facilitated the aforesaid transactions through these seven (7) concerns and he is noted to have submitted that, the advances received by these seven (7) companies were paid back in cash to M/s Binny Limited and MBDL respectively. The Investigating Officer is also noted to have examined the director/shareholder of one of the seven (7) concerns viz., Shri Shanmugavelu of M/s Sun Bright Designers Pvt. Ltd.

:: 5 :: except minor variations. The relevant contents of the common- satisfaction note recorded by the AO in the case of assessee is extracted below for the sake of convenience,:- to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal :: 6 :: to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal :: 11 ::

:: 12 :: that, the income-tax assessments of the assessee for all AYs before us were either completed u/s 143(1)/143(3) of the Act and/or the time limit for issuance of notice u/s 143(2) of the Act had expired, at the time when the notices u/s 153C was issued by the AO. Accordingly, the income-tax assessments for AYs 2014-15 to 2018-19 did not abate consequent to the search. The income-tax assessments for all the respective AYs were completed together on 31.12.2021 u/s 153C/143(3) of the Act, in which the AO inter alia made addition(s) u/s 56(2)(vii), being 50% of the amount(s) advanced by M/s Binny Limited and MBDL to the alleged seven shell entities. The reasons given by the AO for making the impugned addition is verbatim same across all the assessment order(s). Apart from the foregoing, the AO is also noted to have made addition on account of long term capital gain on sale of shares in the hands of the assessee in AY 2014-15. Being aggrieved by the order(s) of the AO, the assessee preferred appeal before the Ld. CIT(A) who dismissed the same. Now the assessee is in appeal before us.

:: 13 :: that of his son, Shri Arvind Nandagopal in as much as a common satisfaction note was recorded on the same date by the same AO and on the same line of reasoning 50% of the advances made by M/s Binny Limited and MBDL were assessed to tax in his hands u/s 56(2)(vii) of the Act; and therefore the decision taken by us in the matters of Shri Arvind Nandagopal would apply mutatis mutandis to this case as well. While deciding the appeals of the assessee’s son, Shri Arvind Nandagopal in to 2274/Chny/2024, we have held that the AO’s usurpation of jurisdiction u/s 153C of the Act to be invalid for failure to satisfy the condition precedent laid down in the said provision and have accordingly quashed the assessment order(s) passed u/s.153C/143(3) of the Act, by holding as under:-

“22. We have heard both the parties and perused the relevant provisions of the Act. Before we advert to the legal issue raised by the assessee, it would first be necessary to take note of the legislation of Section 153C itself. We note that Section 153A/153C of the Act was introduced by the Finance Act, 2003 w.e.f. 01.06.2003. It replaced the provisions relating to block assessment contained in Chapter XIV-B and introduced an altogether new procedure for making assessment u/s. 153 of the Act. The Scheme of assessment u/s 153A/153C is available to the department in addition to all other methods of assessments, revisions and reassessments and each scheme has its distinct set of conditions and stipulations that must be strictly adhered to. The sub-heading of Section 153A of the Act is "Assessment in case of Search or requisition" which is a special provision for assessment in case of an assessee against whom search u/s. 132 or requisition under section 132A of the Act is carried out by the department. Section 153B of the Act prescribes the time limit for completion of assessment u/s 153A and 153C of the Act. Section 153C of the Act bears the heading "Assessment of income of any other person" which is a special provision in respect of assessment of income of "any other person" (third party) against whom no search u/s. 132 or requisition u/s. 132A of the Act was carried out, provided certain conditions precedents are satisfied as envisaged under Section 153C of the Act; and Section 153D of the Act is the provision regarding approvals if necessary for assessment in case of search or requisition.

23. Section 153A of the Act is a special provision for assessment of the ‘searched person’ and Section 153C of the Act is a special provision for assessment of income of 'any other person' which is a third party who is not searched by the Department but will be assessed u/s. 153A of the Act, provided the AO is satisfied that — to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal

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(a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to a person other than the person referred to in Section 153A.

to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal “77. The ingredients of Section 153 C are:

(i) Satisfaction of the Assessing Officer who is Assessing Officer of the section 153A notice that money/bullion/jewellery/other valuable article or thing/books of account or documents (incriminating materials) seized/requisitioned belongs to/pertain to or any information contained, relates to, a third party.

(ii) Recording of satisfaction as above.

(iii)Handing over of the incriminating material to the Assessing Officer having jurisdiction over the third party.

(iv) Recording of satisfaction by the Assessing Officer of the third party that the incriminating material has a bearing on the determination of total income of the third party.

(v) Upon condition of recording of the satisfaction of both officers as above, notices be issued to assess/reassess the income of the third party in accordance with the procedure stipulated under Section 153A.

(i) Recording of satisfaction by the Assessing Officer of the searched entities that some of the incriminating materials relate to a third party.

(ii) Recording of satisfaction by the Assessing Officer of the third party that the incriminating materials have a bearing on the determination of the total income of that third party.

The contention of the revenue that a mandate is cast upon the Assessing Officer of the third party to issue notice under Section 153C for all the years comprising the block, mechanically and automatically, is thus rejected.

to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal

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(emphasis supplied)

"6. The tribunal has found that incriminating material seized and stated to be pertaining to all six assessment years did not establish any co-relation document-wise with the assessment year in question. In other words, the tribunal concluded that the present matter indicates that the issue of notice could be on the basis that there is specific incriminating information in possession of the Assessing Officer. It is in these circumstances that the tribunal found and as indicated in paragraph 8 of the impugned order that the revenue's assertion that the Assessing Officer is empowered under the to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal

:: 17 :: statute to assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted and therefore the satisfaction which is recorded in the satisfaction note is enough, is erroneous. Therefore, the notice cannot be upheld and such stand of the revenue cannot be accepted. The reasons, therefor are to be found in paragraph 9 and 10 of the impugned order. If certain items pertain to assessment year 2004-05 or thereafter then it cannot be assumed, that the documents seized or incriminating material giving information are specific and to all assessment years. The tribunal found that they were concluded assessments. They could not have been disturbed. The documents in question are neither incriminating ones nor unaccounted transactions of the assessee. They also did not relate to the four assessment years. It is in these circumstances that the tribunal found that it will not be possible to uphold the stand of the revenue that overall approach in matters of concealment by the group assessee and all the discoveries of the search on Shri Navale and it concerns, will have to be taken into account while forming the satisfaction. The satisfaction note was very closely examined and the reasons assigned by the Assessing Officer were found to be silent about the assessment year in which specific incriminating information or unaccounted or undisclosed hidden information was discovered or seized by the revenue from the assessee. In the circumstances, the general satisfaction and as recorded in the note is not enough. The tribunal has found that with regard to cash and jewellery, the explanation of the assessee was that he had agricultural properties and derived agricultural income. That income was utilised to acquire jewellery that was belonging to him and his family. With regard to cash and stated to be recovered from the students for granting admissions, we do not find that any inquiries were made. There is absolutely nothing to indicate as to in which educational courses, the education is imparted and institution-wise. Whether the admissions are granted to the technical courses merit-wise or on the basis of marks obtained in XIIth standard HSC exam. If any fee structure is approved and cash component is therefore collected over and above the sanctioned fees are matters which ought to have been gone into and there cannot be a general or vague satisfaction as is relied upon.

9. We are of the opinion that the tribunal's conclusion cannot be termed as perverse and given the above-noted factual background. None of these appeals raises any substantial question of law. They are accordingly dismissed. No costs."

"18. The ITAT permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal

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Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred.

(emphasis supplied)

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The Court laid stress on the existence of material that may be reflective of undisclosed income being of vital importance. The relevant portion of the judgment is as follows:-

“33. The record slip belongs to the assessee and, therefore, the action of the Assessing Officer of the searched persons recording that the same belongs to the assessee cannot be faulted. However, the question then arises is whether the Assessing Officer of the assessee was justified in taking further steps for reassessing the income of the assessee in respect of the assessment years for which the assessments were concluded and in respect of which the seized document had no bearing. In our view, the same would be clearly impermissible as the seized material now available with the Assessing Officer, admittedly, had no nexus with those assessments and was wholly irrelevant for the purpose of assessing the income of the assessee for the years in question. Merely because a valuable article or document belonging to an assessee is seized from the possession of a person searched under section 132 of the Act does not mean that the concluded assessments of the assessee are necessarily to be reopened under section 153C of the Act. In our view, the concluded assessments cannot be interfered with mechanically and solely for the reason that a document belonging to the assessee, which has no bearing on the assessments of the assessee for the years preceding the search, was seized from the possession of the searched persons.

….

36. The decision in SSP Aviation (supra) cannot be understood to mean that the Assessing Officer has the jurisdiction to make a reassessment in every case, where seized assets or documents are handed over to the Assessing Officer. The question whether the documents/assets seized could possibly reflect any undisclosed income has to be considered by the Assessing Officer after examining the seized assets/documents handed over to him. It is only in cases where the seized documents/assets could possibly reflect any undisclosed income of the assessee for the relevant assessment years, that further enquiry would be warranted in respect of those years. Whilst, it is not necessary for the Assessing Officer to be satisfied that the assets/documents seized during search of another person reflect undisclosed income of an assessee before commencing an enquiry under section 153C of the Act, it would be impermissible for him to commence such enquiry if it is apparent that the documents/assets in question have no bearing on the income of the assessee for the relevant assessment years.”

32. We also refer to the decision of the Hon’ble Supreme Court in the case of Abhisar Buildwell (supra) wherein it has been held in unequivocal terms that absent incriminating material, the AO would not be justified in seeking to assess or reassess completed assessments. The same position would prevail in context of Section 153C of the Act as well. Here too, the AO is mandated to firstly identify the AYs' to which the material gathered in the course of the search may relate to and consequently those assessments would face the spectre of Section 153C of the Act. The additions here too would have to be based on material that may have been unearthed in the course of the search or on the basis of material requisitioned. The statute thus creates a persistent and enduring connect between the material discovered and the assessment that may be ultimately made. All the above discussed judgments thus reinforce the requirement of incriminating material having an ineradicable link to the estimation of income for a particular AY in as much as it reinforces our view that notice u/s 153C can be validly issued only when the AO records his objective satisfaction that he has incriminating material pertaining to or relating to the ‘other person’ for the relevant AYs and which may be concerned with their disclosed and undisclosed income. Absent any material qua the ‘other person’ that may either cast a doubt on the estimation of total income for a particular year or years, the AO would not be justified in invoking its powers conferred by Section 153C of the Act. It would only be consequent to such satisfaction being reached that a notice u/s 153C of the Act would be liable to be issued.

to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal

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“08/02/21 - In connection with search and seizure operation u/s 132 of the I.T. Act, 1961 was initiated in the case of M/s. KLP Projects Pvt. Ltd. On 09.11.2017, the premises of M/s. Binny Ltd at No. 1, Cook's Road, Perambur, Chennai was also covered on 09.11.2017 by executing warrant of authorization u/s 132 of the I.T. Act. Premises of Shri A. Nandagopal, Managing Director and Shri M. Nandagopal, Executing Chairman of M/s. Binny Ltd were also covered by executing warrant of authorization u/s 132 of the I.T. Act, 1961 on 09.11.2017. During the course of search and seizure operation, certain incriminating books / documents and electronic devices were found and seized from the premises of Binny Ltd as well as from the premises of A. Nandagopal and M. Nandagopal.

Shri M.Nandagopal (PAN-AADPN2678L), residing at No 6, 6th street, Rutland Gate road, Chennai-06 is the Executive Chairman of M/s.Binny Ltd and M/s M/s.Mohan Brewaries and Distilleries Ltd (MBDL, in short). He holds nearly 45% shares in Binny Ltd and nearly 71% shares in MBDL. His son Shri Arvind Nandagopal (PAN- AAFPA6259G), also living in the same address is the Managing Director of both the companies. He holds nearly 4% shares in Binny Ltd and nearly 8.7% shares in MBDL.

A search and seizure operation u/s 132 of the I.T. Act, 1961 was initiated in the case of M/s.KLP Projects Private Ltd and others on 09.11.2017 during which the premises of M/s Binny Ltd at No 1, Cook's road, Perambur, Chennai was also covered. During the course of search & seizure operation, certain incriminating books/documents and electronic devices were found and seized. to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal

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M/s Binny Limited received an amount of Rs 490 crores (inclusive of Rs 120 crores on-money received in cash) from M/s KLP Projects Private Ltd and others (formerly known as M/s Landmark Barracks Projects Pvt. Ltd towards sale of its land in Barracks road, Perambur, Chennai. The agreement for the deal was signed on 17.10.2013 and the funds were received during the period FY 2013- 14 to FY 2016-17. Further, Binny Ltd entered into Joint Venture agreement with SPR group on26.06.2015for developing its another land parcel at Cook's road, Chennai and towards this it received an amount of Rs 250 crores as security deposit.

During the course of search in the premises of Binny Ltd, its books of accounts maintained in Tally server was imaged and seized vide ANN/AA/AEPL/ED/S. On perusal of the seized books of accounts, it was seen that the funds received from M/s KLP Projects Private Ltd and SPR group were immediately advanced to various concerns as tabulated below and the same were accounted as 'textile advance' S.No Company Name Rs. (In crores) 1 Nurture Traders Private Limited 41.18 2 Premium Steel and Alloys Private Limited 15.00 3 Parshvi Global Interlinks Private Limited 41.15 4 Modest Imperia Trading Private Limited 14.99 5 Glintz Ventures Private Limited 19.00 6 Mass International 56.02 7 Sunbright Designers Private Limited 25.22 Total 212.56

Investigations during the course of search revealed that none of the concerns existed /functioned from the given addresses. Even the Directors of the above concerns were not available in the given addresses. Further during the course of search no supporting documents were found for any movement of goods. This established the fact that none of the above concerns had any real business and there was no actual movement of any goods.

When the facts were confronted with Shri Arvind Nandagopal, MD of M/s Binny Limited, he, in his sworn statement given on 07.03.2018, has admitted that the advances made by both Binny Ltd and MBDL are bogus advances which was used to generated unaccounted cash. The relevant portion of his sworn statement is reproduced below.

Q.No.4 During the course of post-search investigation, it has been found that the above mentioned companies are shell-companies and they did not do any business at all. Please explain what is the reason for payments made to these companies.

Ans. In order to meet unaccounted expenses related to M/s. Binny Limited, We were forced to generate unaccounted cash from the business. I confirm that the Unaccounted cash was generated through the following companies :- to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal

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S.No. Company Name Rs. (In Crores) 1 41.18 Nurture Traders P Limited 2 Premium Steel and Alloys P Ltd 15.00 3 Parslivi Global Interlinks P Ltd 41.15 4 Modest Imperia Trading P Ltd 14.99 5 Sunbright Designers P Ltd 25.22 6 Mass International 13.18 Total 150.72

Further in the case of M/s. Mass International, the amount shown as transferred in the books of M/s. Binny Limited is Rs.56.02 crores. However, out of the amount, only Rs.13.18 crores was received back as unaccounted cash and the balance amount of Rs.42.85 crores was actually transferred to our sister company M/s. Mohan Breweries & Distilleries Limited but debited to M/s. Mass International. Ledger copies of M/s. Mass International and" Advance to MBDL (Others)" are submitted.

M/s. Glintz Ventures Private Limited, after receiving Rs.19 crores from M/s. Binny Limited, have transferred back to our sister company M/s.Mohan Breweries & Distilleries Limited. These payments were made as advances. Ledger copies are submitted in separate sheets."

Q. No. 5. As stated by you in your reply to previous question, M/s. Binny Limited have incurred unaccounted cash expenses of Rs.150.72 Crores which has been booked as "Trade Advance" in the books of M/s. Binny Limited. Your attention is drawn to Section 37(1) of the Income Tax Act, 1961. As per the Section, unaccounted cash expenses incurred in the business is to be disallowed. Please offer your comment.

Ans. M/s. Binny Limited have given trade advances which has been used to generate unaccounted cash, out of the money / income accounted for which full tax has already been paid. Now, we need to take legal experts advice on the treatment of the expenses in the books of accounts.

Q.No. 6.Who facilitated generation of cash through these shell companies?

Ans. The transactions were facilitated by Shri Bhawarlal Jain, Director of M/s Sanklecha Infr Projects Pvt. Ltd. and Shri Manish Parmar of M/s. KLP Projects Pvt. Ltd. I have transferred the money from m/s. Binny Limited to various companies as per his instruction and received the cash back as per our agreement after deducting his commission.

Q.No. 7. What was the commission allowed to the facilitator for their service?

Ans. We paid commission @ 1% and the commission amount works out to Rs. 1.72 Crores.

Shri Bhawarlal Jain, who facilitated these transactions was also covered during search action and he also in his sworn statement dated 07.03.2018 that unaccounted cash was generated through bogus advances. The relevant portion of his sworn statement is reproduced below:-

"Q.No.3 In his sworn statement, Shri Aravind Nandgopal, M.D. of M/s. Binny Limited has stated that M/s. Binny Limited have given loans to the following companies of yours and your brother Shri Maneesh Parmar and received the cash back. to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal

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S.No. Company Name Rs. (In Crores) 1 Nurture Traders P Limited 41.18 2 Premium Steel and Alloys P Ltd 15.00 3 Parshvi Global Interlinks P Ltd 41.15 4 14.99 Modest Imperia Trading P Ltd 5 Sunbright Designers Pvt Ltd 25.22 6 Mass International 13.18 Total 150.72

What do you want to say about this?

Ans. Yes sir. I agree that during the F.Y. 2016-17, the companies shown at Serial Numbers 1 to 5 above, have received loans through banking channel from M/s. Binny Limited to the tune of Rs.137.54 crores which was paid back to M/s. KLP Projects Private Limited as unsecured loans and cash generated from M/s. KLP Projects Private Limited was paid back to M/s. Binny Limited. For this arrangement, we have not received any commission. As far as company shown at serial number 6 is concerned, an amount of Rs.13.18 crores was converted into cash through market company and was paid back to M/s. Binny Limited for which I received commission @ 0.5% which works out to Rs.6.59 lakhs and I offer the same for taxation for the Asst Year 2017-18.

Further, the director / share holder of M/s Sun bright Designers Private Limited Shri Shanmugavelu was confronted with the above facts and he has also confirmed the above fund routing and cash generation. The relevant portion of statement taken from Shri Shanmugavelu is given below for ready reference:-

"Q.No.8 Did you enter into any business transaction with Shri Maneesh Parmar and/or with Shri Aravind Nandagopal?

Ans. During the year 2014-15, our company was facing severe financial crisis and I had been frequenting the bank servicing the loan. There, once Shri Maneesh Parmar approached me with a proposal. As per his proposal, crores of rupees would be sent to my bank account at regular intervals and I had to transfer the amount the very same day to the bank accounts of the companies that he would point out and for this service, I would get around 0.1% of the transacted amount, as my commission and I could deduct the commission amount and pass the balance amount to the bank accounts pointed out by him. As our company was dire need of cash, I readily agreed to this proposal. Thus, I had entered into banking transactions with him.

After this discussion, Shri Maneesh Parmar took me to the office of M/s. Binny Limited at Cooks Road, Perambur, Chennal and introduced me to the M.D. of the company Shri Aravind Nandagopal. After a brief meeting, I left their office. From then on, from sth December 2014 to 11th December 2014, six times cash was sent to my company M/s. Sun Bright Designers Private Limited's bank account No.909020039586056 maintained with Axis Bank and every time the amount was transferred into our company's bank account, Shri Krishnamurthy, CFO of M/s. Binny Limited used to call me over phone and inform me about the cash being transferred into our company's above mentioned bank account and request me to transfer the amount, after deducting my commission, to the Current Bank Account of M/s. Nurture Traders Private Limited maintained with State Bank of India (No.33786616000). Accordingly, 1, being the authorized signatory of my company's bank account, transfer the amount to that account through RTGS. Thus, during these six days, our company received totally around Rs.40,65,12,705 from M/s. Binny Limited and then we transferred Rs. 40,24,87,820/- to M/s. Nuture Traders Private Limited and the balance amount of Rs.40,24,879/- was commission received by my company. to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal

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For documentation, we raised Fabric Sales Invoice against the amount received from M/s. Binny Limited and against payment to M/s. Nurture Traders Private Limited, we received the Fabric Purchase Invoice."

Further during the post search proceedings various efforts to identify the directors of these shell companies, Shri Dinesh Kumar, Shri Manoj Kumar, Shri Ajit Kumar Ojha proved in vain. Shri Bhawarlal Jain in his sworn statement dated 07.03.2018, has admitted that it was he who had operated these shell companies by obtaining the KYC details of the above mentioned persons and the directors are only name lenders for the purpose of KYC. The relevant portion of his statement figuring in reply to Q.no6, is reproduced below:-

"I have tried, in the past, to trace them but all my efforts went in vain. Further, I submit that they were only name lenders and the affairs of the companies were managed by me only. "

It is clear from the above facts that M/s Binny Limited transferred funds to M/s KLP Projects Private Limited through various shell companies and M/s KLP Projects Private Limited, which was generating unaccounted cash by way of on-money received from customers, paid equivalent amount in cash to the promoters of M/s Binny Limited. The fund flow scheme is depicted below:-

In addition to the above, part of the funds received by Binny Ltd from KLP Projects P Ltd and SPR group was transferred to its group concern M/s. MBDL and here also the same strategy was adopted. On receipt of money, MBDL immediately transferred significant part of the funds to various concerns as tabulated below:-

Sr.No. Company Name Rs.(in Crores) 1 M/s.Vetri Solutions 17,23,75,000 2 M/s. Superior Sales Corporation 3,50,00,000 3 M/s.Saheli Exports Private Limited 5,40,000 4 M/s.Padilite Traders 2,82,00,000 5 M/s.Global Imoex I,40,00,000 6 M/s.Premium Steels and Alloys Private Limited 3,52,84,794 7 M/s.Millenium Corporation 6,I1,50,850 8 M/s.GI Exim Private Limited 2,33,I1,369 9 M/s.Parmar Shelters and Infra Private Limited 25,55,43,369 Total 62,54,05,382 to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal

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Here also enquiries revealed that none of the concerns existed/functioned from the given addresses. Even the Directors of the above concerns were not available in the given addresses.

When the above facts were confronted with Shri Aravind Nandagopal, he similarly accepted in his sworn statement dated 07.03.2018 that they were bogus advances made for the purpose of generating unaccounted cash. The relevant portion of his sworn statement is reproduced below:-

Q.No. 8. Similaly, in the case of M/s Mohan Breweries and Distilleries Limited also, there is an outflow of Rs.62,54,05,382/- to various companies as shown below: SI.No. Rs. (in Crores) Company Name 1 M/s.Vetri Solutions 17,23,75,000 2 M/s. Superior Sales Corporation 3,50,00,000 3 M/s.Saheli Exports Private Limited 5,40,000 4 M/s.Padilite Traders 2,82,00,000 5 M/s.Global Imoex 1,40,00,000 6 M/s.Premium Steels and Alloys Private Limited 3,52,84,794

7 M/s.Millenium Corporation 611,50,850 8 M/s.GI Exim Private Limited 2,33,11,369 9 M/s.Parmar Shelters and Infra Private Limited 25,55,43,369

Total 62,54,05,382

What is the basis for transfer of such amount to the above mentioned companies?

Ans. Sir, I confirm that I have made the above payments from m/s. Mohan Breweries and Distilleries Limited to various companies to the tune of Rs.62,54,05,382/-Excepting the companies M/s. GI Exim Private Limited and M/s. Parmar Shelters and Infra Private Limited, payments totaling Rs.34,65,50,644/- were made to generate unaccounted cash to meet out the incidental expenses incurred for running the liquor business.

From the above facts it is firmly established that the Principal officers of Binny Ltd and MBDL namely Shri M.Nandagopal and Shri Aravind Nandagopal have generated unaccounted cash totaling to Rs 185.37 crores (150.72+34.65) by extended bogus advances to various shell companies. However when asked about documentary evidences relating to the utilization of these unaccounted ca.'n. Shri Arvind Nandagopal, MD of the company stated in response to Q.10 of his sworn statement recorded on 07.03.2018, that:

"...In the case of M/s Binny Limited, major incidental expenses were spent for land approval cost paid to the various agencies. Further expenses were incurred in vacating the labourers in Binny Land located in Perambur Barracks Road, Chennai. The company does not maintain any ledger or account for such cash payments."

Similarly, he didn't give any documentary proof for his claim pertaining to MBDL

It is proved beyond doubt that the Principal officers of Binny Ltd and MBDL have generated unaccounted cash and hence the onus is on them to substantiate with documentary/supporting evidence of how the same was spent. However they have failed to discharge their onus and hence the entire unaccounted cash generated amounting to Rs.185.37Crores should be assessed substantively in the hands of the key persons i.e. Shri Arvind Nandagopal, Managing Director to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal

:: 26 :: and Shri M. Nandagopal, Executive Chairman (in proportion to their shareholding) under the head 'Other Income' and protectively in hands of the companies vis M/s Binny Limited and MBDL. The unaccounted cash received shall the taxed in the respective years in which such bogus advances were made.

I am satisfied that the seized documents (Electronic Device) pertains and information contained therein relates to M/s Binny Ltd and the transaction has tax implication in the hands of Shri A. Nandagopal, Managing Partner of M/s Binny Ltd.

As per the provision of section 153C, where the Assessing Officer is satisfied that:-

• Any money, bullion, jewellery or other valuable article or things, seized or requisitioned belongs to; or • Any books of account or documents seized or requisitioned, pertains or pertain to, on any information contained therein, relates to,

A person other than the person referred to in section 153A, then the books of account, documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person.

Further, as per the amendment made by the Finance Act, 2017 with effect from 01.04.2017 to the section 153C of the I.T. Act, in the case of a person other than the person refer to in section 153A, Assessing Officer shall proceed against each such other person and issue notice and assess or re-assess the income of the other person in according with the provision of section 153A for Six Asst. Years immediately preceding the Asst. Year relevant to the previous year in which search is conducted or requisition is made and for the relevant Asst. Year or Years referred to in sub section 1 of section 153A.

The seized documents received from the ACIT, Central Circle 2(1), are carefully perused. On perusal of the seized material received, I am satisfied that the documents seized pertains to and the information contented there in relates to Shri A. Nandagopal, which have a bearing on the determination of total income of Shri A. Nandagopal and as per the amendment made by the Finance Act, 2017 with effect from 01.04.2017 to the section 153C of the I.T. Act, notice u/s 153C to be issued in the case of the assessee Shri A. Nandagopal for the A.Y. 2014-15.

In view of the facts stated above, notice u/s. 153C is to be issued for the A.Y. 2014-15.”

:: 27 :: joint venture with M/s SPR Group, pursuant to which it was in receipt of security deposit of Rs.250 crores. It was the regular books of accounts of M/s Binny Limited which had been seized by the Investigating Authorities, and was marked as Annexure - ANN/AA/AEPL/ED/S. Later on, the Investigating Officer gathered from these books of accounts that, M/s Binny Limited and MBDL had inter alia paid sums to seven (7) entities by way of advance for purchase of fabrics, which was suspected to be bogus. Based on post search enquiries, which we shall discuss in the later paragraphs, the AO was of the view that, the assessee had received back cash in lieu of the bogus advances given by M/s Binny Limited and MBDL, which was to be brought to tax in his hands. Hence, the first document which is to be examined is the impugned seized material i.e. ‘books of accounts’ of M/s Binny Limited maintained in the tally software, and whether it can be regarded as material which related or pertained to the assessee having bearing on his total income, for the AO to have validly assumed jurisdiction u/s 153C of the Act.

:: 28 :: income. As held earlier, the contents of the satisfaction note are to be examined on a stand-alone basis and no new words can be imported into the same nor can the Revenue seek to amplify their reasons later on. It is noted that in the impugned satisfaction note, there is a bald reference to the books of accounts maintained by M/s Binny Limited in the tally software which was imaged and seized vide. ANN/AA/AEPL/ED/S, and the AO observes that it was seen from these books of accounts that the funds received from M/s KLP Projects Pvt. Ltd. & M/s SPR Group were immediately advanced to various concerns by M/s Binny Limited. It is prima facie evident that, the AO has not made out any case as to how he was satisfied that these ‘books of accounts’ related or pertained to the assessee or contained any information which ‘related to’ or ‘pertained to’ the assessee. Rather, the AO himself notes that the books of accounts revealed that funds were advanced by M/s Binny Limited to several concerns. In our considered view therefore, the impugned material i.e. ANN/AA/AEPL/ED/S which was taken to be the material relating/ pertaining to the assessee by the AO / Ld. CIT(A) was factually misplaced and unjustified.

“20. The Tribunal noted the grounds of Appeal. It also noted the facts pertaining to the search and seizure action under Section 132 and the statement of Dilip Dherai. The Tribunal noted the fact that the entire land acquisition was looked after by Central Leadership Team of which Mr. Dilip Dherai, Mr. Anand Jain, Mr. Sanjay Punkhia and Mr. Ajit Warthy are key members. The Tribunal also referred to the seized documents. The Tribunal then referred to the order passed by the Commissioner of Income Tax (Appeals). Then the Tribunal noted the arguments of both sides. These arguments were noted in great details. Then, the Tribunal, in paragraph 18 and 19, held as under :

"18. Thus it is clear that before issuing notice u/s. 153C, the primary condition has to be fulfilled and which is that the money, bullion, documents etc., seized should belong to such other person. If this condition is not satisfied, no proceedings could be taken u/s. 153C of the Act. The seized documents marked as page 1 & 2 or our order do not belong to the assessee but were seized from the residential premises of Shri Dilip Dherai. It is not the case of the Revenue that the impugned documents are in the handwriting of the assessee. At this stage, it would be fair to the Revenue that it cannot be in the handwriting of the assessee since the assessee is a legal person, so to extend our observation, the seized documents are not even in the handwriting of any person related with the assessee because Shri Dilip Dherai is neither a Director nor a shareholder/member nor even an employee of the assessee company. We may mention at this stage that the provisions of the Indian Evidence Act are not strictly applicable to the proceedings under the Income Tax Act, but the broad principles of law of evidence do apply to such proceedings. Further an entry in the books of account maintained in the regular course of business is relevant for the purpose of considering the nature and impact of a transaction, but noting on slip of papers or loose sheet of papers are required to be supported/ corroborated by other evidence. There is also a distinction between loose papers found from the possession of assessee and similar documents found from a third person. In the present case, impugned documents were not found from the possession of the assessee but was found from the possession of a third person i.e. Shri Dilip Dherai. Mere mention of the names of the villages where the to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal

:: 29 :: companies may have purchased lands would not give any basis to assume/presume/surmise that the name of the companies are mentioned in the impugned documents. The very foundation of Sec. 153C has been shaken by not fulfilling the condition precedent for the issue of notice. It is the say of the Ld DR that in the present case there is no need for recording of the satisfaction. If this plea of the DR is accepted then the legislative intent of inserting sec. 153C in the Act would get defeated because the AO will get unstoppable powers to reopen assessments for 6 year in the case of the ' Other Person ' without recording any basis [ satisfaction ] for his action. Therefore this plea of the Ld DR cannot be accepted.

19. Considering the entire facts and circumstances in the light of the impugned seized documents, we have no hesitation to hold that action taken u/s. 153C of the Act is bad in law."

“31. As regards the second jurisdictional requirement viz., that the seized documents must be incriminating and must relate to the AYs whose assessments are sought to be reopened, the decision of the Supreme Court in Sinhgad Technical Education Society (supra) settles the issue and holds this to be an essential requirement. The decisions of this Court in RRJ Securities and ARN Infrastructure India Ltd. v. Asstt. CIT [2017] 394 ITR 569/81 taxmann.com 260 (Delhi) also hold that in order to justify the assumption of jurisdiction under Section 153 C of the Act the documents seized must be incriminating and must relate to each of the AYs whose assessments are sought to be reopened. Since the satisfaction note forms the basis for initiating the proceedings under Section 153 C of the Act, it is futile for Mr Manchanda to contend that this requirement need not be met for initiation of the proceedings but only during the subsequent assessment.

to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal

:: 30 ::

to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal

:: 31 ::

"Q.No.3 In his sworn statement, Shri Aravind Nandgopal, M.D. of M/s. Binny Limited has stated that M/s. Binny Limited have given loans to the following companies of yours and your brother Shri Maneesh Parmar and received the cash back.

S.No. Company Name Rs.(In Crores) 1 Nurture Traders P Limited 41.18 2 Premium Steel and Alloys P Ltd 15.00 3 Parshvi Global Interlinks P Ltd 41.15 4 Modest Imperia Trading P Ltd 14.99 5 Sunbright Designers P Ltd 25.22 6 Mass International 13.18 Total 150.72

What do you want to say about this?

Ans. Yes sir. I agree that during the F.Y. 2016-17, the companies shown at Serial Numbers 1 to 5 above, have received loans through banking channel from M/s Binny Limited to the tune of Rs. 137.54 crores which was paid back to M/s. KLP Projects Private Limited as unsecured loans and cash generated from M/s. KLP Projects Private Limited was paid back to M/s. Binny Limited. For this arrangement, we have not received any commission. As far as company shown at serial number 6 is concerned, an amount of Rs.13.18 crores was converted into cash through market company and was paid back to M/s. Binny Limited for which I received commission @ 0.5% which works out to Rs.6.59 lakhs and I offer the same for taxation for the Asst Year 2017-18.”

:: 32 :: for his personal benefit. In our considered view therefore, the AO’s reliance on this statement for invoking jurisdiction u/s 153C of the Act was unjustified.

"Q.No.8 Did you enter into any business transaction with Shri Maneesh Parmar and/or with Shri Aravind Nandagopal?

Ans. During the year 2014-15, our company was facing severe financial crisis and I had been frequenting the bank servicing the loan. There, once Shri Maneesh Parmar approached me with a proposal. As per his proposal, crores of rupees would be sent to my bank account at regular intervals and I had to transfer the amount the very same day to the bank accounts of the companies that he would point out and for this service, I would get around 0.1% of the transacted amount, as my commission and I could deduct the commission amount and pass the balance amount to the bank accounts pointed out by him. As our company was dire need of cash. I readily agreed to this proposal. Thus, 1 had entered into banking transactions with him.

After this discussion, Shri Maneesh Parmar took me to the office of M/s. Binny Limited at Cooks Road, Perambur. Chennai and introduced me to the M.D. of the company Shri Aravind Nandagopal. After a brief meeting. I left their office. From then on, from 5th December 2014 to 11 December 2014, six times cash was sent to my company M/s. Sun Bright Designers Private Limited's bank account No. 909020039586056 maintained with Axis Bank and every time the amount was transferred into our company's bank account, Shri Krishnamurthy, CFO of M/s. Binny Limited used to call me over phone and inform me about the cash being transferred into our company's above mentioned bank account and request me to transfer the amount, after deducting my commission, to the Current Bank Account of M/s. Nurture Traders Private Limited maintained with State Bank of India (No.33786616000). Accordingly, I. being the authorised signatory of my company's bank account, transfer the amount to that account through RTGS. Thus, during these six days, our company received totally around Rs.40,65,12,705 from M/s. Binny Limited and then we transferred Rs. 40,24,87,820/- to M/s. Nuture Traders Private Limited and the balance amount of Rs. 40,24,879/- was commission received by my company.

For documentation, we raised Fabric Sales Invoice against the amount received from M/s. Binny Limited and against payment to M/s. Nurture Traders Private Limited, we received the Fabric Purchase Invoice."

:: 33 :: averments as made by Shri Shanmugavelu in his sworn statement recorded u/s 131 of the Act.

"According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected."

“22. On the next issue of refusal of cross-examination of the persons whose statements were recorded during the time of search under section 132(4) of the Income Tax Act, it is trite law that the person against whom a statement is used, should be given opportunity to counter and contest the same. I am unable to accept the contention of the learned Senior Counsel that since the statements recorded were of persons who were employees of the assessee and therefore the assessee cannot seek for cross-examination of them. The basic principles of jurisprudence governing the law of evidence can in no way interfered and could not be by the Income Tax Act provisions and neither the authorities functioning under the Income Tax Act has any discretion in such matters. The Supreme Court in the judgment Kishan Chand Chellaram 125 ITR 713 at page 720 which is also followed in the judgments cited by the petitioner in the case of Roger Enterprises (P) Ltd. (supra) and in the case of Brij Bhushan Singhal (supra), held as follows:-

"It is true that the proceedings under the Income Tax Act law are not governed by the strict rules of evidence and therefore, it may be said that even without calling the Manager of the bank in evidence to prove this letter, it could be taken into account as evidence. But before the Income Tax authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for the opportunity to cross- examine the Manager of the bank with reference to the statement made by him. ....'' to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal

:: 34 ::

“Q.No.4 During the course of post-search investigation, it has been found that the above mentioned companies are shell-companies and they did not do any business at all. Please explain what is the reason for payments made to these companies.

Ans. In order to meet unaccounted expenses related to M/s. Binny Limited, we were forced to generate unaccounted cash from the business. I confirm that the Unaccounted cash was generated through the following companies:- S.No. Company Name Rs.(In Crores) 1 Nurture Traders P Limited 41.18 2 Premium Steel and Alloys 15.00 P Ltd 3 Parshvi Global Interlinks 41.15 P Ltd 4 Modest Imperia Trading P 14.99 Ltd 5 Sunbright Designers P 25.22 Ltd 6 Mass International 13.18 Total 150.72 to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal

:: 35 ::

Further, in the case of M/s. Mass International, the amount shown as transferred in the books of M/s. Binny Limited is Rs.56.02 crores. However, out of the amount, only Rs. 13.18 crores was received back as unaccounted cash and the balance amount of Rs.42.85 crores was actually transferred to our sister company M/s. Mohan Breweries & Distilleries Limited but debited to M/s. Mass International. Ledger copies of M/s. Mast International and Advance to MBDL (Others)" are submitted.

M/s. Glintz Ventures Private Limited, after receiving Rs. 19 crores from M/s Binny Limited, have transferred back to our sister company M/s.Mohan Breweries & Distilleries Limited. These payments were made as advances. Ledger copies are submitted in separate sheets. "

Q. No. 5. As stated by you in your reply to previous question, Mis. Binny Limited have incurred unaccounted cash expenses of Rs. 150,72 Crores which has been booked as "Trade Advance" in the books of M/s. Binny Limited. Your attention is drawn to Section 37(1) of the Income Tax Act. 1961. As per the Section, unaccounted cash expenses incurred in the business is to be disallowed. Please offer your comment.

Ans. M/s. Binny Limited have given trade advances which has been used to generate unaccounted cash, out of the money/income accounted for which full tax has already been paid. Now, we need to take legal experts advice on the treatment of the expenses in the books of accounts.

Q.No. 6. Who facilitated generation of cash through these shell companies?

Ans. The transactions were facilitated by Shri Bhawarlal Jain, Director of M/s Sanklecha Infra Projects Pvt. Ltd. and Shri Manish Parmar of M/s. KLP Projects Pvt. Ltd. I have transferred the money from M/s. Binny Limited to various companies as per his instruction and received the cash back as per our agreement after deducting his commission.

Q.No. 7. What was the commission allowed to the facilitator for their service?

Ans. We paid commission @ 1% and the commission amount works out to Rs. 1.72 Crores.”

:: 36 :: personal benefit outside the books, thereby having a bearing on the determination of his total income, to invoke jurisdiction u/s 153C of the Act.

to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal (a) CIT v. Harjeev Aggarwal (290 CTR 263) (Del HC)

"19 In view of the settled legal position, the first and foremost issue to be addressed is whether a statement recorded under Section 132(4) of the Act would by itself be sufficient to assess the income, as disclosed by the Assessee in its statement, under the Provisions of Chapter XIV -B of the Act.

(b) PCIT v. Best Infrastructure (India) Pvt. Ltd. (ITA No. 13 of 2017) (Del HC)

“38. Fifthly, statements recorded under Section 132 (4) of the Act of the Act do not by themselves constitute incriminating material as has been explained by this Court in Harjeev Aggarwal (supra). Lastly, as already pointed out hereinbefore, the facts in the present case are different from the facts in Smt. Dayawanti Gupta (supra) where the admission by the Assessees themselves on critical aspects, of failure to maintain accounts and admission that the seized documents reflected transactions of unaccounted sales and purchases, is non-existent in the present case. In the said case, there was a factual finding to the effect that the Assessees were habitual offenders, indulging in clandestine operations whereas there is nothing in the present case, whatsoever, to suggest that any statement made by Mr. Anu Aggarwal or Mr. Harjeet Singh contained any such admission.”

(c) PCIT v. Anand Kumar Jain (HUF) (ITA No. 23 of 2021) (Del HC)

“7. The preliminary question under consideration before us is whether a statement under Section 132(4) constitutes incriminating material for carrying out assessment under S. 153(A) of the Act. A reading of the impugned order reveals that the statement of Mr. Jindal recorded under Section 132(4) forms the foundation of the assessment carried out under Section 153A of the Act. That statement alone cannot justify the additions made by the AO. Even if we accept the argument of the Revenue that the failure to cross-examine the witness did not prejudice the assessee, yet, we discern from the record that apart from the statement of Mr. Jindal, Revenue has failed to produce any corroborative material to justify the additions. On the contrary we also note that during the course of the search, in the statement made by the assessee, he denied having known Mr. Jindal. Since there was insufficient material to support the additions, the ITAT deleted the same. This finding of fact, based on evidence calls for no interference, as we cannot re-appreciate evidence while exercising jurisdiction under section 260A of the Act.” to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal

:: 38 ::

(d) Saveetha Institute of Medical & Technical Sciences v. ACIT (25 taxmann.com 138) (ITAT Chennai)

“8. The Assessing Officer has opined that the capitation fees so collected cannot tantamount to voluntary contribution or subscriptions to the corpus of the society but are in the nature of donations and capitation fees. However, this addition has been deleted by the learned Commissioner of Income-tax (Appeals) by observing that no such addition can be made solely on the basis of statements recorded under section 132(4) of the Act and there being no related evidence having been found during search showing receipt of such donations. He has also found that no one has really accepted having received donation/capitation fees as has been alleged by the Assessing Officer.

9. ………….There being no incriminating evidence regarding receipt of capitation fees, particularly when no document was put to Dr. B. Muthukumaran regarding charging of capitation fees, such a statement cannot be made a basis for making such a huge addition. His statement was rather denied by the managing trustee/president. Shri T.A. Varadarajan, finance manager also denied the statement of Dr. B. Muthukumaran. In any other case, even one goes by this statement, this would not make any meaningful sense. Dr. B. Muthukumaran has stated that the money had been handed over to one Shri Saravanan, accounts officer, but Shri Saravanan was never enquired by the Department. The statement of Dr. N.M. Veeraiyan, who is the president/ management trustee of the trust, never accepted having receipt of capitation fees or donation and he had rejected and denied the statement of Dr. B. Muthukumaran. Statement of Dr. N.M. Veeraiyan was recorded under section 131 on November 9, 2007, in which he has stated that whatever was received from the students was reflected in the books of account. This statement confirms the contention of the assessee that some well wishers were giving donations which were duly received and reflected in the books of account. In fact, the statement of Dr. N.M. Veeraiyan was recorded under section 131 on November 9, 2007 which has also been made a basis for this addition. He was not examined under section 132(4) of the Act. A statement made under section 131 cannot be equated with a statement recorded under section 132(4) of the Act. A statement recorded under section 132(4) is a valid and relevant piece of evidence but a statement recorded under section 131 is not so relevant. Nevertheless, even a statement recorded under section 132(4) cannot be made a sole basis for any such addition unless corroborated by seized material. If any admission is made in a statement recorded under section 132(4), this can be used with reference to any piece of evidence found during the course of search. In this case, as we have stated above, no such piece of evidence or to say any incriminating evidence was either found or seized. What was found was a note giving the break-up of number of students who were admitted under different quotas in various courses. In our well considered view, this addition could not have been made at all in the hands of the assessee- trust on the basis of such evidence. Recording of some questions after verification could be viewed as an involuntary statement, extracted from the deponent. In any case, a possibility of such inference is always there. With regard to such statement, the Central Board of Direct Taxes has issued instructions vide Circular No. 286/2/2003-IT, wherein it has been directed that search party shall not obtain confessions. So, the admission made under section 132(4) by the concerned officer cannot be treated even as a valid piece of evidence. There being no incriminating document having been found or seized during search and the statement also being abstruse, the addition in question has no legs to stand on. Had there been a valid statement, even then, solely on the basis thereof, addition could not have been made. This is a well settled principle of law by now and there are umpteen decisions in support of this view.”

to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal (e) DCIT v. VVD & Sons (P) Ltd. (158 taxmann.com 395) (ITAT Chennai)

“8.5 The addition made by the Assessing Officer was merely on the basis of statement and is not corroborated by any documentary evidence. It is not denying the fact that statement was on oath and can be used as evidence. However, mere statement cannot be the basis of addition. Without credible evidence, the Department cannot make addition purely based on the confessions made during search/survey operation as envisaged by the CBDT vide instruction F.N. 286/2/2003 dated 10-3-2003 and reiterated by the Board vide its letter dated 18-12-2014.”

“42. Scope of Reasonable Expenditure: Assessee needs to expend in order to earn income/profit and it is basic and universal principle in any business. This principle applies to both accounted and unaccounted profits. In a case of unaccounted profits, due to its very nature of unaccounting, normally, the parties do not maintain evidences and therefore, evidencing such unaccounted evidences is impossibility. Probably, for this reason, the courts have taken conscious view that it is for the assessing authority to quantify reasonable expenditure considering the facts of the case and industry. Legally speaking, the judgments are uniform in asserting that entire sale proceeds should not be added as income. Hon’ble High court of Ahmadabad ruled in the case of Panna Corporation that the " assessee ought to have spent reasonable amount for the purpose of receiving such gross profit' (para 14 of Tax Appeal No 325 of 2000 dt. 16.6.2012). Further, Hon'ble High Court OF Madhya Pradesh held in the case of President Industries 258 ITR 654 that ' entire sale proceeds of the assessee should not be added in his income'. Further, from the judgment in case of Panna Corporation (supra), it is settled proposition that there is no need for the assessee to demonstrate the genuineness of the claim of unaccounted expenditure in the cases of this kind. The underlined logic is that the unaccounted expenditure is always unevidenced and never maintained. Therefore, transferring onus on to the assessee in matters of this kind is not approved. Ex consequenti, it is for the AO allow necessarily to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal

:: 40 :: reasonable deduction towards such unaccounted expenditure without demanding evidences, considering the nature of industry and also evidences relating to extents of net profits earned by the assessee. Considering the above legal position on the matter, we are of the clear-cut opinion, the AO's conclusions on this issue are certainly erroneous. In principle, we uphold the views of the CIT(A) in this regard. Therefore, relevant grounds raised in the revenue's appeals are dismissed.”

:: 41 :: not even made out a case for lifting the corporate veil. He also pointed out that M/s Binny Limited was governed and managed by a full-fledged Board of Directors and there was nothing brought on record by the AO to show that the entire Board acted solely at the behest of the assessee or his father or for that matter only two directors i.e. the assessee and his father controlled the affairs of M/s.Binny Limited basis which they were being regarded as the sole beneficiaries of the alleged cash generated. He also pointed out that the assessee only had a shareholding of 4% in M/s Binny Limited and thus there was no rationale to the AO’s assumption that 50% of the trade advances was attributable to the assessee alone. In so far as assessee’s father is concerned, it is observed that though he held 45% of the shares of M/s Binny Limited, but at the same time, he had nowhere admitted that the advances given by the company were bogus. The Ld.AR took us through his statement which was recorded u/s 132(4) of the Act in the course of search, which was placed at Pages 1 to 6 of Paper Book. It is observed that the assessee’s father had confirmed the transactions with M/s KLP Projects Pvt Ltd & SPR Group and had inter alia only admitted to undisclosed income qua M/s Binny Limited of Rs.120 crores upon sale of land which statement also is noted to have been retracted. The assessee’s father had also furnished the details of utilization of monies received upon sale of land through banking channel. It is seen that the assessee’s father had nowhere stated that, the advances given by M/s Binny Limited was bogus or that it was received back in cash. We agree with the Ld. AR that this statement recorded u/s 132(4) was a valid piece of evidence and stood at a higher pedestal than the assessee’s statement taken u/s 131 of the Act. However the statement of assessee’s father is noted to have been conspicuously avoided by the AO while recording his satisfaction u/s 153C of the Act. Having regard to the foregoing, it is observed that the AO had failed to establish any co-relation either document-wise or on facts for arriving at his opinion that 50% of the impugned advances pertained to the assessee. Hence, in absence of existence of this jurisdictional fact, as held by the Hon’ble Supreme Court in the case of CIT v. Sinhgad Technical Education Society (supra), the AO’s assumption of jurisdiction u/s 153C stood vitiated in law.

to 2269/Chny/2024 (AYs 2014-15 to 2018-19) Masilamani Nandagopal

:: 42 ::

:: 43 :: gone into the merits of the issue(s), the additional evidences furnished by the assessee have not been looked into by us.

Order pronounced on the 07th day of November, 2025, in Chennai.